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©2019 Kommunalkredit Public Consulting and Navigant Energy Germany GmbH
The EU’s Sustainable Finance and
FinTech Agenda: Breaking the silos
Discussion Paper – Final Version
for:
Federal Ministry for the Environment, Nature Conservation
and Nuclear Safety (BMU)
by:
Martin Gauss
Kommunalkredit Public Consulting GmbH
Türkenstrasse 9
1092 Vienna - Austria
T: +43 1 31631 224, [email protected]
Project number: 201220
December 2019
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TABLE OF CONTENTS
List of abbreviations ............................................................................................... iii
1 The financial sector’s role in adressing global megatrends ................ 5
2 Identifying synergies ............................................................................... 7
2.1 Mainstreaming Sustainable Finance into the FinTech agenda ........................................... 7
2.2 Identifying concrete FinTech opportunities to support the implementation of the Action
Plan on Financing Sustainable Growth ............................................................................... 8
2.3 Building and expanding on relevant initiatives in the EU .................................................. 10
3 Conclusions and recommendations .................................................... 12
4 Summary of expert discussions ........................................................... 15
5 Literature ................................................................................................. 18
Annex I The EU’s sustainable finance and FinTech agenda .............................. 20
The EU Sustainable Finance Agenda ......................................................................................... 20
The EU FinTech Agenda ............................................................................................................. 24
Annex II FinTech: Digital technologies at a glance ............................................. 30
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LIST OF ABBREVIATIONS
AI HLEG (EU) High-Level Expert Group on Artificial Intelligence
AIML Artificial Intelligence and Machine Learning
API Application Programming Interface
DG Directorate-General
DG FISMA DG for Financial Stability, Financial Services and Capital Markets Union
DLT Distributed Ledger Technology
EBA European Banking Authority
EC European Commission
EIB European Investment Bank
EIOPA European Insurance and Occupational Pensions Authority
EPRS European Parliamentary Research Service
ESAs European Supervisory Agencies on financial issues
ESMA European Security Markets Authority
EU European Union
EU TEG European Union Technical Expert Group
FSB Financial Stability Board
GDPR General Data Protection Directive
HLEG High-Level Group on Sustainable Finance
ICO Initial Coin Offering
ICT Information and Communication Technology
IoT Internet of Things
ISO International Organisation for Standardisation
GHG Greenhouse gas
HLEG High-level Expert Group on Sustainable Finance
IFRS International Financial Reporting Standards
NDC Nationally Determined Contribution
P2P lending Peer-to-peer lending
SDGs Sustainable Development Goals
SDFA Sustainable Digital Finance Alliance
SDI Sustainable Development Investment
SME Small and medium-sized enterprise
TCFD Task Force on Climate-related Financial Disclosure
UN United Nations
UNFCCC United Nations Framework Convention on Climate Change
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This discussion paper is the fourth publication of a series of inputs to stimulate discussion in the realm
of the project “Climate-friendly design of the EU budget and financial markets”. The following analysis
and recommendations shall serve as a basis for discussions during the forthcoming workshop of the
Expert Network on Climate and Sustainable Finance in the EU on synergies between the European
Commission’s agenda on Financing Sustainable Growth and on FinTech.
The project “Climate-friendly design of the EU budget and financial markets” is financed by the
European Climate Initiative (EUKI). EUKI is a project financing instrument by the German Federal
Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU). It is the overarching
goal of the EUKI to foster climate cooperation within the European Union in order to mitigate
greenhouse gas emissions. It does so through strengthening a cross-border dialogue and cooperation
as well as through exchanging knowledge and experience.
The information and views set out in this publication are those of the author and do not necessarily
reflect the official opinion of the Federal Ministry for the Environment, Nature Conservation and
Nuclear Safety.
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1 THE FINANCIAL SECTOR’S ROLE IN ADRESSING GLOBAL
MEGATRENDS
Sustainability – with climate change and environmental protection among the key drivers – as well as
digitalisation – the use of digital technologies in processes and businesses – are among global trends
that will impact and define the future of the EU economy and society.
The European Union supports the transition to a low-carbon, more resource efficient and sustainable
economy and has been at the forefront of efforts to build a financial system that supports sustainable
growth. In 2015, landmark international agreements have been established with the adoption of both
the UN 2030 Agenda with its 17 Sustainable Development Goals and the Paris Climate Agreement.
Particularly the latter includes the commitment to align financial flows with a pathway towards low-
carbon and climate resilient development1.
The internet and digital technologies are transforming the lives we lead, the way we work and
communicate as individuals, in business and in our communities and social networks; the global
economy is rapidly becoming digital. Digitalisation, and the associated transformation, is thus a trend
our societies need to deal with, seizing the associated opportunities, and managing the risks2.
Capital markets and the wider financial sector play an important role in addressing the above-
mentioned trends and can contribute to reap associated benefits, while considering key risks related,
for instance, to financial stability and cybersecurity:
• through sustainable finance, the financial sector can help reach sustainability goals, re-
orienting investments towards sustainable businesses and technologies, financing growth in a
sustainable manner and over the long-term, thereby contributing to the creation of a low-
carbon, climate resilient and circular economy;
• through FinTech – financial technologies, i.e. digital technologies applied in the financial
services industry including the banking, investment and insurance sectors – offering new
opportunities for both consumers and companies alike, with potentially huge impact on the
industry’s business models, efficiency gains, customer reach and product development.
In order to harness synergies, both subjects could potentially be combined – as expressed by the
double responsibility of DG FISMA’s recently created unit “Financial Technology and Sustainable
Finance”. While the overarching EU policies relevant to sustainability, digitalisation and capital
markets are becoming increasingly intertwined, linkages between the sustainable finance and
FinTech agenda seem to be not fully exploited yet.
1 See paragraph 2.1.c) of the Paris Agreement.
2 The EU has devised a comprehensive set of policies in this context to address these challenges.
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Intentions and structure of the paper
This paper sets out to break the silos between the EU agenda related to sustainable finance and to
FinTech – as predominantly presented in the dedicated action plans – through making aware of the
links between the two elements, aiming at fostering FinTech activity dedicated to sustainable finance
across European borders. This shall contribute to advance the subject of sustainable finance, taking
into account any associated risks and unintended consequences of using digital technologies.
Generally speaking, this endeavour requires the intersection of three areas: finance, sustainability and
(digital) technology. In the European context, this means exploring synergies between the EU’s
sustainable finance and FinTech agenda, notably the respective action plans launched by the
European Commission in March 2018. This paper thus attempts to inform a potentially more
integrated future EU agenda on sustainable finance and FinTech.
Figure 1 “FinTech for sustainable finance” at the intersection of finance, sustainability and (digital) technology
(Source: elaboration by the author).
Based on an analysis of both the EU’s sustainable finance and FinTech agenda (see Annex), this
paper provides suggestions on how to harness opportunities resulting from linking both agendas.
Finally, a set of conclusions and recommendations summarises the most important findings.
Finance
(digital) Technology
Sustainability
Sustainable
Finance
Digital Technology
for Sustainability
FinTech
FinTech for
Sustainable Finance
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2 IDENTIFYING SYNERGIES
In its further development of the sustainable finance and FinTech agenda, the European Commission
could seek synergies between the single measures, seizing opportunities from, inter alia, main-
streaming sustainable finance into the FinTech agenda, identifying concrete FinTech opportunities to
support the implementation of the Sustainable Finance Action Plan, and building and expanding on
relevant initiatives in the EU, while considering the risks and unintended consequences.
2.1 Mainstreaming Sustainable Finance into the FinTech agenda
The following measures could be considered for embedding the notion of sustainable finance in
initiatives and measures taken under the FinTech Action Plan:
(i) The EU FinTech Lab and the network of EU FinTech facilitators, including innovation hubs and
regulatory sandboxes, could consider expanding capacity building and knowledge sharing efforts
as well as piloting operations including FinTech solutions for sustainable finance, especially in the
context of RegTech, one of the potential topics to be addressed by the EU FinTech Lab as
mentioned in the FinTech Action Plan3. If appropriate, ESMA’s potential guidelines on FinTech
facilitators could refer to the relevance of sustainable finance, as well.
(ii) Similar to activities already undertaken under the EU AI Alliance, the EU Blockchain Observatory
and Forum and stakeholder fora under the European Open Science Cloud (launched in
November 2018) could hold dedicated events and workshops relating to the potential contribution
of the relevant digital technologies to sustainable finance (such as “blockchain for sustainable
finance”) and document lessons and examples in strategic documents on DLT/blockchain and Big
Data, respectively.
(iii) The Ethical Guidelines on Trustworthy AI and the related Policy and Investment
Recommendations elaborated by the AI HLEG provide an excellent starting point on the nexus of
AI and sustainability, which could be further exploited through engaging FinTech companies in the
related discussions under the European AI Forum.
(iv) Staff of the European Supervisory Agencies working on FinTech on the one hand (such as
EIOPA’s InsurTech Task Force) and sustainable finance on the other, could be connected to form
common task forces within and across their organisations. The European Banking Federation, for
example, has recently done so, now engaging with the European Commission on possible further
actions.
(v) EBA’s FinTech Knowledge Hub – described in the agency’s FinTech roadmap, could consider
sustainable finance as a major trend to which the hub could contribute.
3 see section 2.4 of the FinTech Action Plan.
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(vi) Vice-versa, the potential contribution of FinTech to sustainable finance should become an
agenda item for the future “Sustainable Finance Platform” as planned under the Action Plan for
Financing Sustainable Growth; measures for the promotion of dedicated FinTech solutions could
be mentioned in a forthcoming Action Plan on Sustainable Finance (No.2) to anchor the subject
in the sustainable finance agenda, as well.
(vii) A cross-cutting study could assess the potential and the most critical challenges of FinTech
technologies for sustainable finance (addressing one of the key messages from the public
FinTech Consultation by the Commission), as well as other research topics as suggested by the
SDFA (2018), such as:
o How can digital technologies help financial institutions better identify, analyse and
integrate environmental and social risks into financial decision making?
o How can financial centres leverage digital finance to improve sustainability?
o How can digital finance transform the future of sustainable infrastructure financing?
o How can digital technologies accelerate achievements of each SDG?
(viii) A public consultation could help gauge stakeholders’ opinion on the subject, including the
relative importance and possible actions.
2.2 Identifying concrete FinTech opportunities to support the implementation
of the Action Plan on Financing Sustainable Growth
Among the spectrum of opportunities, the following FinTech use cases identified under the Action
Plan on Financing Sustainable Growth could help meeting regulatory requirements.
Regulatory technology (RegTech) solutions for the following use cases could help advancing specific
actions, such as:
• Usability of the forthcoming EU taxonomy
The comprehensive and relatively complex classification system proposed by the EU Technical
Expert Group (TEG) in its report raises concerns on its usability by the financial sector. The
currently ongoing consultation and further work by the TEG might warrant the consideration of
using digital technologies – considering general principles like interoperability and common
standards – to facilitate the application of the taxonomy.
• Digitalised public corporate reporting on sustainability
Action 9.1. of the Action Plan refers to a fitness check of EU legislation on public corporate
reporting, including the NFI Directive to assess whether public reporting requirements for listed
and non-listed companies are fit for purpose. It will include the evaluation of sustainability
reporting requirements and the prospects for digitalised reporting. In order to report relevant
information, companies might need to gather specific sustainability-related information
demonstrating for instance environmental performance. This might draw on the use of digital to
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gather, analyse and streamline reporting according to provisions in a forthcoming taxonomy, the
Task Force on Climate-related Financial Disclosure (TCFD), and the Guidelines on reporting
climate-related Information.4,5
• Green Bond reporting and verification
The reporting of environmental impacts and the respective verification are key components of the
EU Green Bond Standard as proposed by the TEG in June 2019. Similar to the previous use
case, impact reporting and (immutable) verification could be supported by digital technologies
including blockchain, thereby lowering the transaction costs of green investments.
• SDG reporting and verification
In analogy to reporting on green impacts, digital technologies can also be used to measure, report
on and verify SDG impacts. A first initiative has been launched under the Gold Standard for the
Global Goals.
• Risk management for climate-induced financial risks
A variety of FinTech, consulting companies and think-tanks have already engaged in assessing
climate-related risks including transition risks and physical risks for investment and lending
portfolios, with the potential need for further finetuning, mainstreaming and consolidation of
underlying methodologies6.
• Other FinTech opportunities to support the future sustainable finance agenda
Arranging dedicated brainstorming with financial sector representatives from asset managers,
institutional investors, the insurance industry and the banking sector under the already existing
technology-specific multi-stakeholder fora could result in devising sector-specific FinTech
opportunities related to sustainable finance. A starting point could be relevant research questions
mentioned in the previous chapter. Identified opportunities could be fed into FinTech hackathons,
harnessing the creative power of start-ups, such as the Climathon organised through EIT Climate-
KIC7, a European climate innovation initiative.
4 In October 2019, the EU Commission organized a conference on how (digital) technology could drive the future of financial
reporting within the capital market union. The Commission furthermore is developing the European Financial Transparency
Gateway (EFTG), a pilot project exploring ways to solve the problem of data fragmentation through the use of distributed ledger
technologies (DLT). See https://www.regonline.com/registration/checkin.aspx?EventID=2568629
5 The financial market – in cooperation with the public sector – is meanwhile advancing in this field. See the recent joint
investment by German institutions in an ESG data provider using an array of digital technologies mentioned in the next chapter.
6 See for instance the presentations from the session on “Assessing climate-related risks and opportunities in investment and
lending portfolios” held at the Austrian Climate Change Workshop in January 2019.
7 https://climathon.climate-kic.org/en/
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European Banking Federation: Identifying use cases
Based on a desk review of relevant sources, the European Banking Federation’s (EBF) internal task force on
FinTech & Sustainable Finance has already identified a series of use cases, including:
(i) Cost-effective tracking of green asset performance, (ii) Traceability of sustainable supply chains (iii) Expanding its
product offerings to underserved segments (financial inclusion) through e.g. mobile payment solutions, (iv) Risk
reduction through identification of creditworthy customers, and (v) Matching clients’ non-financial preferences with
relevant financial products.
2.3 Building and expanding on relevant initiatives in the EU
There are several initiatives in Europe that already focus on the combination of the FinTech and
sustainable finance, some of which are mentioned below8. The EU could consider extracting the
lessons learnt and upscaling these initiatives through a dedicated programme.
• Stockholm Green Digital Finance Centre, a not-for-profit organisation tasked to accelerate green
finance and investment through FinTech innovations, launched in May 2017, which shall serve for
piloting creative solutions. The centre recently identified more than hundred digital applications in
eight FinTech categories across Europe and a series of sustainable FinTech initiatives.
• The Banking Environment Initiative’s FinTech Taskforce, convened by the University of
Cambridge Institute for Sustainability Leadership (CISL), which – already in October 2017 –
published a report on Catalysing FinTech for Sustainability, issuing ten recommendations on how
to design collaboration between multinationals, financial institutions and start-ups for harnessing
FinTech to help solve sustainability challenges in the real economy.
• Sustainable FinTech Switzerland, a project by the grassroots think tank foraus – Swiss Forum on
Foreign Policy, aiming at the creation of the digital, sustainable financial industry of tomorrow by
(i) building a community of experts and enthusiasts around the topic of sustainable, digital
finance, (ii) fostering a constant and critical evaluation of the development of sustainable, digital
finance on the policy level, and (iii) supporting the creation, development and refinement of
sustainable, digital financial products.
• Finance for Tomorrow, promoting Paris as an international leader in sustainable finance, offering
also the “FinTech for Tomorrow Challenge” – a competition for FinTech with solutions for
financing the ecological transition, recognising FinTech as key stakeholders of the transition.
• SDG-FinTech Initiative, embedded in Frankfurt Main Finance, has been founded by FinTech start-
ups to bridge between policy makers, corporations and start-ups in the area of sustainability,
aiming at being a focal point for cooperation with start-ups, foster knowledge exchange especially
between start-ups in developing and industrialised countries.
8 SDFA (2018) has mapped initiatives and examples for sustainable digital finance across G20 member states, i.e. beyond
Europe.
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• The German State of Hessen, as part of its engagement in the Green Finance Cluster Frankfurt
e.V., has recently invested jointly with other three German financial institutions in Arabesque S-
Ray, a data provider of ESG metrics based on AIML, IoT sensors and devices, and big data
analysis for the assessment of sustainability performance (Allianz SE, July 2019).
• Digital Innovation Call in the context of the SDGs, a governmental support programme led by
Austrian governmental agency aws, offers attractive financial support to SMEs in digital product
innovations with a clear contribution to one or more SDGs, which could present opportunities for
FinTech in sustainable finance.
• The Climate-KIC Accelerator, a programme of the Knowledge and Innovation Community (KIC)
by the European Institute of Innovation and Technology (EIT) focusing on climate-friendly
solutions provides financial and coaching support for start-ups. The programme partners with the
financial sector to increase funding volumes and design targeted solutions9.
Similarly, Climate-KIC’s focus area on Decision Metris & Finance aims at mainstreaming climate
into financial markets, democratising climate risk information and fostering bankable green
assets, especially in cities. Respective initiatives include (i) financial markets and accounting, (ii) a
low carbon city lab, iii) climate risk information, and iv) the Mission Finance campaign, for which
the organisation regularly launches calls for project proposals.
• The Swiss FinTech Innovation Lab from the University of Zurich and the Sustainable Digital
Finance Alliance, a not-for-profit foundation founded by UN Environment and ANT Financial have
founded a new collaboration programme in 2019, aiming at accelerating the field of “Green Digital
Finance”, which will allow to develop knowledge on green fintech practices10.
• APG, the largest Dutch pension delivery organisation, in cooperation with PGGM – a cooperative
Dutch pension fund service provider – will cooperate on setting up the AI-supported Sustainable
Development Investment (SDI) Asset Owner Platform. This will enable institutional investors to
assess around ten thousand listed investments on their contribution to the SDGs, drawing on
common definitions, SDI taxonomy and data source11.
9 For instance, with the insurance companies Munich Re and ERGO, see http://climate-kic-dach.org/sidecall/
10 https://www.uzh.ch/dam/fintech/media/university-of-zurich-and-the-green-digital-finance-foundation-launch-a-
collaboration.pdf
11 https://www.apg.nl/en/article/-Wereldwijd-%20SDI-Asset%20-Owner%20-Platform/1110
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3 CONCLUSIONS AND RECOMMENDATIONS
The following conclusions can be drawn from the analysis:
• Overarching EU policies related to sustainability and digitalisation are becoming
increasingly intertwined, with the European strategic long-term vision for a prosperous,
modern, competitive and climate-neutral economy of November 2018 mentioning
Sustainable finance and the EU Budget as well as the Digital Single Market as major
gears for driving the required transition;
• While the Action Plans on Financing Sustainable Growth and on FinTech set a series of
specific targeted measures, they do not cross-reference to each other. The exception is
Action 9.1 in the former, referring to the evaluation of the prospects for digitalised reporting in
the context of public sustainability reporting requirements. The single measures thus
potentially lose out on synergistic effects;
• Apart from the measures implemented under the FinTech Action Plan in accordance with its
three objectives, complementary actions such as the set-up of the EU Blockchain
Observatory and Forum and the establishment of the High-Level Group on Artificial
Intelligence (AI HLEG) have been carried out under the Digital Single Market strategy,
aiming at advancing the respective digital technologies of blockchain and AI;
• It is especially noteworthy that the AI HLEG in its recently elaborated documents refer to the
need to develop Trustworthy AI. This concept integrates a series of factors including the
protection of the integrity of humans, society and the environment, mentioning opportunities
in the fields of climate action and sustainable infrastructure, health and well-being,
quality education and digital transformation among the potential contribution by the
technology.
The following recommendations are made:
• When seeking synergies between the sustainable finance and FinTech agenda, it is crucial to
respect general principles like interoperability, standardisation and using open-source
solutions to facilitate upscaling. The consideration of risks inherent to both subjects,
including those related to financial stability, consumer protection and especially
cybersecurity is equally important. Addressing the unintended consequences in terms of
potential economic, social and environmental impacts is also critical;
• Possible synergies from linking single measures under both agendas mostly relate to
overcoming limited knowledge sharing, lack of awareness, and to identifying use
cases, with the subject of limited (sustainability) data availability and use meriting its own
analysis and structural approach for finding adequate solutions;
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• Mainstreaming sustainable finance in the FinTech agenda could encompass the following
actions: expanding efforts by the EU FinTech Lab and the network of EU FinTech
facilitators to include sustainable finance (and especially RegTech solutions), discussing
sustainable finance use cases in technology-specific multi-stakeholder fora like the EU
Blockchain Observatory and Forum and the AI Alliance, connecting staff within and across
ESAs currently working in isolation either under the subject of FinTech or sustainable finance,
launching a cross-cutting study and conducting a public consultation on opportunities and
challenges;
• Straightforward FinTech opportunities under the sustainable finance agenda could focus on
RegTech to facilitate compliance, with use cases concerning the usability of the taxonomy,
digitalised public corporate reporting, green bond and SDG-related reporting and
verification. Other opportunities could be derived from dedicated brainstorming within
multi-stakeholder groups or by task forces within organisations (like the European Banking
Federation);
• The latest report on the taxonomy lists ICT technologies, in particular data-driven ones
contributing to reducing greenhouse gas emissions, as sustainable. It notes, however, that
do-no-significant-harm criteria are still to be assessed and that ICT technologies have
environmental impacts that cannot be neglected. Similarly, ICT can contribute to climate
change adaptation, and linked to relevant financial and insurance activities, could present
important use cases for FinTech, attracting capital from sustainable investors;
• Digitalised public corporate reporting on sustainability could be a further use case,
drawing on the Commission’s recent learnings from a conference on how digital technology
could drive the future of financial reporting as well as the pilot project on the European
Financial Transparency Gateway using DLT. This could feed into the related Action 9.1. of the
Action Plan on Sustainable Finance;
• A series of promising initiatives that focus on FinTech and sustainable finance already
exist in the EU. Many of them engage in pilot initiatives, creative processes to identify
solutions or offering financial and coaching support for enterprises. The Commission
could extract lessons learnt from these and launch a dedicated programme for upscaling
these initiatives.
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Priority recommendations for a more-integrated EU sustainable finance and FinTech agenda:
1. Analyse the feasibility for setting-up a European-level “Sustainable digital finance
centre”, which
o bridges between public and private ecosystem stakeholders of both FinTech and
sustainable finance, including supervisors, regulators, financial institutions, FinTech
companies and associations, digital experts, sustainability experts, and covering a
broad spectrum of sustainability including green (i.e. climate, energy and other
environment-related issues) but also social, governance and SDG-related matters,
o promotes the scaling-up FinTech activities for sustainable finance across Europe
through, for instance, organising green and sustainable FinTech challenges
benefitting from, for instance, external advice and coaching and regulatory support
(“green regulatory sandbox”)12,
o provides knowledge management services, documenting and disseminating
successful business models for solving specific use cases, as well as awareness
raising activities across ecosystem institutions and fora including the need to solve
unintended consequences such as carbon emissions,
o sets up and maintains a European-level sustainable FinTech Directory, categorizing
relevant sustainable FinTech companies according to their type of sustainable or
green business model13;
o builds on interdisciplinary staff with expertise in finance, sustainability and digital
technology and is supported by a conducive enabling framework including political,
economic, social and technological conditions.
2. Consider the promotion of dedicated green (sustainable) regulatory sandboxes through
mainstreaming sustainability into the approach of regulatory sandboxes, coupling regulators
and supervisors with (internal or external) sustainability experts for additional support.
3. Advance the up-take and further scale-up of the afore-mentioned RegTech use cases
by FinTech companies, potentially offering financial support, including,
o defining the requirements for digitalising the taxonomy,
o supporting pilots on green bond and SDG-related reporting and verification, and,
o enhancing the European Transparency Gateway Project on digitalised public
corporate reporting taking into account sustainability reporting.
12 See the UK Green FinTech Challenge including regulatory support as an example https://www.fca.org.uk/firms/fca-
innovate/fintech-challenge
13 See the Austrian FinTech Directory as a general example http://austrianfintech.directory/
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4 SUMMARY OF EXPERT DISCUSSIONS
This section summarises the discussions during the fourth meeting of the Expert Network on Climate
Finance in the EU on “The EU’s Sustainable Finance and FinTech Agenda: Breaking the silos” held in
Brussels on 27 November 2019. The previous chapters of this report have served as a background
for the discussions of the (extended) expert network group.
Interventions
Intervention 1: Linking sustainable Finance and FinTech
DG FISMA cooperates across its units and across the European Commission on issues relevant to
sustainable finance and FinTech and will seek further alignment in the future. The Commission also
liaises with the UN Secretary’s Task Force on Digital Financing of the SDGs and is aware of several
potential use cases related to innovation regarding the use of data, business models and platforms
dealing with identifying ESG preferences. By mid-December 2019, the Commission will be able to
draw on the report by the expert group on regulatory obstacles to financial innovation (ROFIEG) and
will view the recommendations also from a sustainable finance perspective14. Moreover, the
Commission noted that the future European Sustainable Finance Platform will have a clear focus on
advancing the taxonomy, only. On the EU FinTech Lab, the Commission stressed the fact that this
initiative focuses on finding more effective licensing, with many technology challenges to be tackled
by supervisors, with sustainability not being a priority.
The next Commission will accelerate action on climate change, working towards climate neutrality of
the continent by 2050 (see European Green Deal15), which will also build on a renewed strategy on
green finance. The latter will be accompanied by a public consultation in 2020. Stakeholders could
support the Commission through participating in the consultation, continuing to provide expert advice
(through research papers, etc.) and through communicating relevant initiatives, barriers and
opportunities to the Commission.
Intervention 2: Setting up relevant task forces – Lesson learnt
The European Banking Federation (EBF) noted that within the work stream of sustainable finance it
also considers the greening of finance through technology support. Technology can enhance
14 See the ROFIEG’s final report: 30 Recommendations on regulation, innovation and finance, which also takes note of
sustainable finance:
https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/191113-report-expert-group-
regulatory-obstacles-financial-innovation_en.pdf
15 See the Communication on the European Green Deal as of 11 Dec. 2019: https://ec.europa.eu/info/files/communication-
european-green-deal_en
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monitoring, traceability and trust building, as confirmed by EBF desk research. EBF has also set up a
task force with member banks on sustainable finance and FinTech in order to identify potential use
cases, raising awareness and identify benefits but also risks for gathering a complete picture. The
EBF also recommends the democratization of data and information, sharing these amongst European
supervisors, thereby enabling a full digital market.
The task force has brought unexpected and good insights into both subjects, fostering the enthusiasm
of the participants. Concrete deliverables might be defined once further information has been
gathered and analysed, including the ROFIEG report on regulatory obstacles, which will be also
applicable for certain green FinTech cases. Catalysts, such as the Stockholm Digital Finance Centre
also play an important role in advancing the combined agenda.
Intervention 3: Green Digital Finance – recent Experiences
The Stockholm Green Digital Finance Centre has carried out a desk-research study on mapping
green FinTech across the EU, identifying a wealth of use cases and companies. These provide either
solutions to existing barriers or entirely new revenue streams. Crowdfunding emerged as the single
most represented FinTech solution in the study, allowing early stage finance for start-ups and ways to
achieve growth, with angel investing emerging, as well. Digital impact investment is another new use
case with several FinTech companies emerging. Blockchain, as distributed data base, records data in
an immutable, transparent and verifiable way, being cost efficient through smart contracts that do not
require intermediaries. It allows for instance for tokenization and trading of renewable energy.
Spanish bank BBVA recently issued a green bond using blockchain technology, while the green asset
wallet is a platform for green bond verification and reporting. Artificial intelligence is often combined
with big data analysis for instance used for ESG company reporting. An example for IoT is Robeco
using satellite data for detecting reforestation as engagement tool.
General discussion
Opportunities
• Green sandboxes could foster the creation of green business models,
• Fintech can help greening finance but FinTech companies could also make efforts to become
greener themselves through energy efficiency measures, etc.; an example from Estonia is
TransferWise, which jointly with other FinTech companies pledged to become climate neutral
by 2030,
• ICT also features in the taxonomy, with potential use cases to be derived,
• Financial literacy is key too for greening banks and their portfolios, thereby also creating
potential use cases for FinTech.
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Challenges
• Unintended consequences like high energy consumption of ICT and related carbon emissions
need to be tackled,
• The majority of financial institutions and FinTech companies currently do not focus on
sustainability, but raising awareness could help,
• FinTech regulators are sometimes overwhelmed with technological issues, with limited
capacity to consider sustainability matters,
• Staff in organisations sometimes does not feel comfortable discussing topics not directly
related to its field of expertise, raising barriers to communication and information exchange.
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5 LITERATURE
Allianz X. (18. July 2019). https://www.allianz.com/. Von Media Release: Arabesque S-Ray partners
with Allianz X, Commerz Real, DWS, and Land Hessen:
https://www.allianz.com/en/press/news/financials/stakes_investments/190718_Allianz-X-
partners-with-Arabesque-in-consortium.html
EU Sustainable Expert Group on Sustainable Finance (EU TEG). (June 2019). Taxonomy Technical
Report.
European Banking Authority (EBA). (March 2018). The EBA's FinTech Roadmap.
European Commission. (2015a). Report from the Commission of the European Parliament and the
Council. Von https://ec.europa.eu/transparency/regdoc/rep/1/2015/EN/1-2015-576-EN-F1-
1.PDF
European Commission. (May 2015). A Digital Single Market Strategy for Europe (Communication).
European Commission. (September 2016). Capital Markets Union - Accelerating Reform
(Communication).
European Commission. (March 2017). Consumer Financial Services Action Plan: Better Products,
More Choice.
European Commission. (March 2017a). Summary of contributions to the Public Consultation on
FinTech.
European Commission. (2018a). Fact Sheet on the Action Plan on Sustainable Finance.
European Commission. (March 2018). Action Plan: Financing Sustainable Growth.
European Commission. (March 2018a). FAQ on the FinTech Action Plan.
European Commission. (April 2018). Artificial Intelligence for Europe. Communication.
European Commission. (November 2018). A Clean Planet for all. A European strategic long-term
vision for a prosperous, modern, competitive and climate neutral economy (Communication).
European Parliament. (May 2017). FinTech: the influence of technology on the future of the financial
sector. European Parliament resolution.
European Parliamentary Research Service (EPRS). (February 2019). Fintech (financial technology)
and the European Union: State of play and outlook.
European Parliamentary Research Service (EPRS). (March 2017). Financial technology (FinTech):
Prospects and challenges for the EU.
European Political Strategy Centre. (2018). 10 Trends reshaping Climate and Energy.
Financial Centers for Sustainability (FC4S) and Stockholm Green Digital Finance. (March 2019).
Sustainable Finance and FinTech in Europe.
Financial Stability Board (FSB). (February 2019). FinTech and market structure in financial services.
Financial Stability Board (FSB). (May 2019). Crypto-assets: Work underway, regulatory approaches
and potential gaps.
Financial Stability Board (FSB). (November 2017). Artifical intelligence and machine learning in
financial services: market developments and financial stability implications.
High-Level Expert Group on Artificial Intelligance (AI HLEG). (June 2019). Policy and Investment
Recommendations for trustworthy AI.
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High-level Expert Group on Artificial Intelligence (AI HLEG). (April 2019). A definition of AI: Main
capabilities and scientific disciplines.
High-Level Expert Group on Artificial Intelligence (AI HLEG). (April 2019). Ethics Guidelines for
Trustworthy AI (consultated and revised version).
Sustainable Digital Finance Alliance (SDFA). (October 2018). Digital Technologies for Mobilizing
Sustainable Finance. Applications of Digital Technologies to Sustainable Finance.
University of Cambridge Institute for Sustainability Leadership (CISL). (October, 2017). Catalysing
Fintech for Sustainability: Lessons from multi-sector innovation.
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ANNEX I THE EU’S SUSTAINABLE FINANCE AND FINTECH AGENDA
With its catalytic role in terms of contributing to the achievement of sustainability goals and applying
advanced technologies to foster innovation and new business models as part of a digital
transformation process, the financial sector is at the core of both the sustainable finance agenda and
the FinTech agenda.
On a more general policy level, sustainable finance (and the EU budget) as well as the digital single
market are major “gears” in the EU’s long-term transition strategy16.
Figure 2 Sustainable Finance and Digital Single Market as gears in the European Enabling Framework for the long-
term transition to a prosperous, modern, competitive and climate-neutral economy (adapted from European
Commission, 2018a)
The EU Sustainable Finance Agenda
Background
Sustainable finance is the provision of finance to investments taking into account environmental,
social and governance considerations. It includes a strong green finance component that aims to
support economic growth while reducing pressures on the environment, addressing greenhouse gas
emissions and fostering climate resilience, tackling pollution, minimising waste and improving
16 A Clean Planet for all. A European strategic long-term vision for a prosperous, modern, competitive and climate neutral
economy (European Commission, November 2018).
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efficiency in the use of natural resources. At the same time, sustainable finance encompasses
awareness and transparency on the risks which may have an impact on the stability of the financial
system, as well as on the need for financial and corporate actors to mitigate those risks through
suitable governance arrangements17.
At the core of the development of its sustainable finance agenda lies the EU’s intention to integrate
sustainability consideration in its financial policy framework in order to mobilise finance for sustainable
growth (see Figure 3 below).
Figure 3 The concept of sustainable finance (European Commission, 2018a)
Major milestones in the development of the EU’s Sustainable Finance agenda
The Paris Agreement, an agreement within the United Nations Framework Convention on Climate
Change (UNFCCC), has been adopted in December 2015 by the representatives of 196 state parties,
including the EU. The targets under the EU’s climate and energy framework simultaneously serve as
the EU’s Nationally Determined Contribution (NDC) under the Paris Agreement. In the same year, the
international community adopted the UN 2030 Agenda, with its 17 SDGs at its core.
In December 2016, and as previously announced in its communication on the Capital Markets Union
– Accelerating Reform, the EC established a High-level Expert Group on Sustainable Finance (HLEG)
with a mandate to provide advice on how to (i) steer the flow of public and private capital towards
sustainable investments, (ii) identify the steps that financial institutions and supervisors should take to
protect the stability of the financial system from risks related to the environment, and (iii) deploy these
policies on a pan-European scale.
The HLEG, comprised of 20 experts from the finance sector, civil society, academia and observers
from European and international institutions, delivered an interim report in July 2017; its final report,
17 Through the proposed sustainability taxonomy published by the EU TEG in June 2019, the EU further specifies economic
activities classified as “sustainable”, focusing on substantial contribution to climate change mitigation and adaptation.
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Figure 4 Action Plan on Financing Sustainable Growth: 10 key actions and their status of implementation by June 2019
(Source: presentation of the European Commission at EBF steering committee meeting, 27 June 2019)
published in January 2018, issued eight priority recommendations as essential building blocks for
further action, eight cross-cutting recommendations, several recommendations on financial institutions
and sectoral issues, as well as numerous social and broader environmental sustainability
recommendations.
At several places, the report also refers to the importance of FinTech entrepreneurs as an additional
player joining the search for new ways of making finance greener and more connected, helping to
connect the supply of capital with place-based priorities, mobilising their expertise through European
financial centres to contribute to both climate action and wider sustainable development. The
recommendations by the HLEG also form the basis of the respective EC’s action plan adopted soon
afterwards.
The EU Action Plan on Financing Sustainable Growth
The Action Plan on Financing Sustainable Growth, released in March 2018, shall contribute to raise
additional private capital and to re-orient financial flows towards sustainable projects and economic
activities, while safeguarding financial stability. Main aims and actions are presented below.
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Attracting sustainable finance: ICT technologies under the EU taxonomy (Action 1)
A relevant outcome under the development of the EU sustainability taxonomy by the technical expert group on
sustainable finance (TEG) is the classification of the information and communication technologies (ICT) sector under the
activities that can make a substantial contribution to climate change.
Particularly for data driven solutions aiming at emission reductions, the taxonomy report of June 2019 mentions that
climate change related mitigation criteria are not required, although do-no-significant-harm (DNSH) criteria have not yet
been assessed. Similarly, the ICT sector can substantially contribute to or enable adaptation, for example through
weather or early warning system related applications such as satellite tracking.
Linked to financial and insurance activities (as also mentioned under activities related to climate change adaptation in the
Taxonomy), this could present use cases to be exploited by FinTech companies.
Figure 5 The ICT sector can make substantial contribution to both climate change mitigation and adaptation
according to the EU taxonomy (Source: TEG Supplementary Report to the Taxonomy, June 2019).
At the same time the taxonomy recognised one of the major challenges of the ICT sector related to its energy
consumption – currently accounting for 8-10% of European electricity consumption and up to 4% of its carbon emissions.
Eligible activities under the taxonomy to improve energy efficiency of data centres, for instance, thus need to comply with
technical criteria.
Implementation of the action plan has started swiftly, with the Commission tabling a set of legislative
proposals in May 2018 covering key recommendations by the HLEG and respective actions of its
action plan related to (i) the establishment of a framework for sustainable finance, including a
taxonomy, (ii) sustainability disclosure obligations, (iii) sustainability benchmarks and (iv) sustainability
in investment advice. The Commission has so far proceeded with the implementation in accordance
with its implementation timeline. Figure 4 above summarises its status of implementation as per June
2019.
The action plan does not explicitly link to FinTech or digital technologies, apart from Action 9.1., which
refers to “…the fitness check of EU legislation on public corporate reporting, including the NFI
Directive to assess whether public reporting requirements for listed and non-listed companies are fit
for purpose. It will include the evaluation of sustainability reporting requirements and the prospects for
digitalised reporting. The conclusions of the fitness check will be published by Q2 2019 and will inform
any future legislative proposals to be adopted by the Commission”. This could present an opportunity
for engaging FinTech (see also chapter 2.2).
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The EU FinTech Agenda
Background
FinTech, or financial technology, refers to technology-enabled innovation in financial services. It spurs
new business models, applications and processes, thus having a transformative effect on financial
markets and institutions and on the provision of financial services as a whole (European Commission,
March 2018a).
Investment in the application of FinTech represents billions of Euros and keeps increasing every year.
The constantly evolving portfolio of technologies include, inter alia, artificial intelligence and machine
learning (AIML), cloud services (such as computing, processing, hosting, data storage), distributed
ledger technology (DLT, including blockchain), big data analytics, Internet of Things (IoT) and
application programming interface (API)18.
Main benefits of FinTech include,
• Potential for facilitating online relations with customers (i.e. digital customer relationships),
thereby fostering access to financial services for and enhancing financial inclusion of
consumers and businesses, particularly SMEs, through cross-border financial services and
alternative lending and investment channels,
• Increasing opportunities and allowing for new business models, such as crowdfunding and
peer-to-peer (P2P) lending,
• Improving customer experience through the “look and feel” of online interfaces in the area of
retail financial services,
• Cross-border market access and service provision through reaping the benefits of digital
networks, along with increased speed and traceability of transactions,
• Bringing down operational (and compliance) costs and increasing efficiency for the financial
industry, thus contributing to the competitiveness of the European financial system and
economy, potentially also leading to lower consumer prices for retail financial products and
services,
18 for brief descriptions of these technologies, see the Annex to this document.
RegTech stands for regulatory technology and refers to the use of FinTech solutions for compliance purposes, bringing
down compliance costs in areas like supervisory reporting, anti-money laundering, know-your-customer requirements, etc.
InsurTech stands for insurance technology refers to insurance enabled by or provided via new technologies, for example
through automated devices, risk assessments and Big Data, but also insurance against new risks such as cyberattacks.
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• From a European perspective, the contribution to creating a more competitive and innovative
financial market through digital technologies19.
Major milestones in the development of the EU’s FinTech agenda
The three main pillars for the development of a dedicated FinTech agenda, notably the FinTech
Action Plan, include the Capital Markets Union, the Digital Single Market and the Single Market for
Consumer Financial Services.
The associated action plan to the latter, in particular, aims at supporting the development of an
innovative digital world to overcome some of the existing barriers in the single market, and led to the
creation of a dedicated commission-internal FinTech task force in November 2016, followed by a
public consultation in early 2017 as basis for deriving required actions to support the development of
FinTech and a technology-driven single market for financial services.
The public consultation gathered stakeholders’ views on the impact of new technologies in financial
services, and in particular on the following four FinTech-related policy objectives:
• Fostering access to financial services for consumers and business
• Bringing down operational costs and increasing efficiency in the industry
• Making the single market more competitive and lowering barriers to entry
• Balancing greater data sharing and transparency with data security and protection needs.
Many of the 182 respondents confirmed that FinTech (and technological innovation in general) were
drivers of financial sector development with huge opportunities in terms of access to finance,
operational efficiency, cost saving and competition, while cybersecurity, use, control and protection of
data, liability issues, as well as fraud-related compliance issues (money laundering) were the
predominant themes on the risk side.
Moreover, technological neutrality, proportionality in the regulatory framework for financial services,
and integrity were considered to be the right principles to guide the EU approach on FinTech. The
need for open dialogue and collaboration between regulators, supervisors and firms (whether start-
ups or incumbents) was stressed by respondents as essential to support FinTech update in the EU
(European Commission, March 2017a).
In May 2017, the EU Parliament through its own-initiative resolution invited the EC to take more action
in FinTech sectors through drawing up a comprehensive FinTech Action Plan in the Framework of its
Capital Market Union and Digital Single Market strategies in order to contribute to achieving an
efficient and competitive, deeper and more integrated, stable and sustainable European financial
19 From a European perspective, another benefit of FinTech should be to contribute to the subject of sustainable finance.
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system, provide long-term benefits to the real economy and address the needs of consumer and
investor protection and of regulatory uncertainty.
The FinTech Action Plan
Responding to the outcomes of the consultation, the FinTech Action Plan presents a number of
targeted initiatives to embrace the digitalisation of the financial sector, contributing to achieving a
more competitive and innovative financial market. The Action Plan – released in March 2018, as its
equivalent in sustainable finance – is part of the Union’s strive for a digital single market, a true single
market for consumer financial services and for building a capital markets union.
While considering the case for broad legislative or regulatory action or reform at EU level to be rather
limited, the Commission set out a series of measures to reach its three main objectives as listed
below and visually presented in Figure 5 below.
Alongside the FinTech Action Plan, the Commission published a set of legislative proposals relating to
crowdfunding, including (i) a proposal for a Regulation on European Crowdfunding Service Providers
(ECSP) for Business and (ii) a proposal for a Directive amending Directive 2014/65/EU on markets in
financial instruments, amending the scope of MiFID II20.
Figure 5 The FinTech Action Plan (Source: Fact Sheet, EU Commission, March 2018)
The action plan mentions important synergies between the Digital Market Strategy, the Cybersecurity
Strategy, the Consumer Financial Services Strategy, the mid-term Review of the Capital Markets
20 See further information on EC’s crowdfunding activities at https://ec.europa.eu/info/business-economy-euro/growth-and-
investment/financing-investment/crowdfunding_en
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Union and other documents related to the digital transformation. However, the document does not
refer to the topic of sustainable finance.
Status of implementation
The actions mentioned in the document have been already implemented and are being advanced as
listed below:
Regarding Objective I: Enabling innovative business models to reach EU scale
• On the invitation by the Commission, the ESAs have published a joint report on regulatory
sandboxes and innovation hubs in January 2019, including a comparative analysis and best
practices of the innovation facilitators. According to the report, a lack of cooperation between
financial regulators across the EU could be hindering businesses from expanding their
FinTech services beyond national borders. 21 EU members states currently have innovation
hubs, while only 5 members states have regulatory sandboxes (EPRS, 2019).
• EBA published a FinTech Roadmap in March 2018 with its priorities for 2018 and 2019,
envisaging a FinTech Knowledge Hub21 to improve sharing of expertise and promote
technological neutrality in regulatory and supervisory approaches, also interacting with the
EU’s FinTech Lab.
• EIOPA has set up the InsurTech Task Force22 to analyse the use of Big Data. It maps the
initiatives on the national level in this area, with a view to improving supervisory practices. At
a later stage, the task force will also investigate the benefits and risks arising from the use of
blockchain and smart contracts.
• On the request of the Commission, the European Securities and Markets Authority (ESMA)
published Advice on Initial Coin Offerings and Crypto-Assets in January 2019.
• Jointly with the International Organisation for Standardization (ISO), the EC has established a
FinTech Technical Advisory Group, to develop coordinated standards.
• The Commission supported the Application Programming Interface (API) Evaluation Group
under the European Payment Council to promote the update of standardised APIs in line with
the Payment Services Directive and the General Data Protection Directive (GDPR) as a basis
for a European open banking eco-system.
Regarding Objective 2: Supporting the uptake of technological innovation
• A call for applications has been launched in March 2018 for the selection of members of the
European Commission group of experts on “regulatory obstacles to financial innovation
21 https://eba.europa.eu/financial-innovation-and-fintech/fintech-knowledge-hub
22 https://eiopa.europa.eu/Pages/Working%20Groups/InsurTech-Task-Force.aspx
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(ROFIEG)” that will assist the Commission by providing high-level expertise on EU financial
services legislation in relation to FinTech.
• Upon invitation by the EC, EBA issued guidelines on outsourcing arrangements, including
cloud outsourcing, in February 2019,
• Support has been granted for the self-regulatory work of the cloud stakeholder working group
on cloud switching from April 2018 onwards,
• Already under the Digital Single Market, the Commission
o has set-up the EU Blockchain Observatory and Forum in late 2017 to help identify and
provide analysis of the technological and organisational trends on blockchain and
distributed ledger technologies (not limited to the financial sector), develop and provide
expertise and support learning, as well as create a forum to engage with stakeholders for
facilitating sharing of experiences and leading expert and public debate through involving
authorities, regulators and supervisors23.
o has created the High-Level Expert Group on Artificial Intelligence (AI HLEG) in June 2018
to support the implementation of the European Strategy on AI, including the elaboration of
recommendations on future-related policy development an on ethical, legal and societal
issues related to AI. Meanwhile, the AI HLEG has delivered Ethics Guidelines on Artificial
Intelligence (with the objective to build trust in human-centred AI), as well as Policy and
Investment Recommendations, see the textbox below). The AI HLEG also steers the
European AI Alliance, a multi-stakeholder forum for discussion of AI development and its
impact on the economy and the environment, holding a first assembly in June 2019
including a workshop on AI’s Social and Environmental Impact (so-called Sustainable AI).
• The International Association for Trusted Blockchain Application (INATBA) has been
launched, being a Brussels-based multi-stakeholder organisation bringing together suppliers
and users of distributed ledger technologies with representatives of governmental
organisations and standard setting bodies from all over the world.
• The “Convergence” Global Blockchain Congress has been organized in November 2019 to
define the future of blockchain and potentially also of the Next-Generation Internet.
• The EU FinTech Lab has been set up, aiming at providing training to regulators and
supervisors and sharing knowledge and new technologies through demonstrations, expert
discussion and workshops. A first meeting was held in June 2018 on the topic of cloud
outsourcing in the banking and insurance sectors.
23 See https://www.eublockchainforum.eu/
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Protecting the integrity of humans, society and the environment: excerpt from the AI HLEG Policy and
Investment Recommendations for Trustworthy AI (June 2019).
Fostering the development of AI solutions that address sustainability challenges, by launching competitions and missions
for AI solutions tackling specific environmental problems, strengthening this component in the Horizon Europe missions,
and enact a circular economy plan for digital technologies and AI in particular to incentivise companies to reduce the
carbon footprint of data centres and devices (including smartphones).
Consideration must be also given to the sustainability of big data-driven AI and modern computing and AI architectures
to ensure that the process of developing AI products and services also does not have an undue sustainability impact.
Opportunities of Trustworthy Artificial Intelligence: AI HLEG Ethics Guidelines on Trustworthy AI (April
2019).
Trustworthy AI can represent a great opportunity to support the mitigation of pressing challenges facing society such as
an ageing population, growing social inequality and environmental pollution. This potential is also reflected globally, such
as with the UN Sustainable Development Goals:
• Climate action and sustainable infrastructure: While tackling climate change should be a top priority for
policy-makers across the world, digital transformation and Trustworthy AI have a great potential to reduce
humans’ impact on the environment and enable the efficient and effective use of energy and natural resources.
Trustworthy AI can, for instance, be coupled to big data in order to detect energy needs more accurately,
resulting in more efficient energy infrastructure and consumption…
• Health and well-being: Trustworthy AI technologies can be used – and are already being used – to render
treatment smarter and more targeted, and to help preventing life-threatening diseases…
• Quality education and digital transformation: New technological, economic and environmental changes
mean that society needs to become more proactive. Governments, industry leaders, educational institutions
and unions face a responsibility to bring the citizens into the new digital era ensuring they have the right skills
to fill the future jobs. Trustworthy AI technologies could assist in more accurately forecasting which jobs and
professions will be disrupted…
Regarding Objective 3: Enhancing security and integrity of the financial sector
• Upon invitation of the Commission, the ESAs published the Joint Advice on Information and
Communication Technology (ICT) risk management and cybersecurity, as well as Joint
Advice on the costs and benefits of developing a cyber resilience testing framework for
significant market participants and infrastructures with in the whole EU financial sector (both
in April 2019).
Outlook on potentially further actions
In February 2019, the Commission’s Vice President Valdis Dombrovskis stressed Europe’s need to
embrace FinTech for reasons of international competitiveness, mentioning the necessity of closer
cooperation between the EU supervisory agencies24. Moreover, specific EU regulation on crypto
assets25 could be desirable, as well as a regulatory push to speed up instant payments in the context
of the Payment Account Directive. Combined with European Central Bank’s efforts to develop a
common EU open banking scheme, the latter would introduce innovation in the EU’s retail banking
sector.
24 See summary report from the 3rd Annual Conference on Fintech and Regulation, https://www.fintech2019.eu/
25 A crypto-asset (including digital currencies) is a type of private asset that depends primarily on cryptography and distributed
ledger (or similar) technology; cryptography refers to the conversion of data into private code using encryption algorithms,
typically for transmission over a public network (FSB, May 2019).
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ANNEX II FINTECH: DIGITAL TECHNOLOGIES AT A GLANCE
Digital technologies applied in the context of FinTech include, inter alia, mobile technology, artificial
intelligence, social networks, machine learning, DLT/blockchain, cloud computing, big data analytics,
Internet of Things. Their use cases are generally not limited to the financial sector and the portfolio of
technologies is constantly expanding.
• Artificial intelligence and machine learning (AIML) for automated advice and execution
Artificial intelligence refers to systems that show intelligent behaviour: by analysing their environment,
they can perform various tasks with some degree of autonomy to achieve specific goals. AI-based
systems can be purely software-based, acting in the virtual world (e.g. voice assistants, image
analysis software, search engines, speech and face recognition systems) or AI can be embedded in
hardware devices, e.g. advanced robots, autonomous cars, drones or Internet of Things applications
(AI HLEG, April 2019). Mobile phones, e-commerce tools, navigation systems and many other
different sensors constantly gather data or images. AIML can learn from this torrent of data to make
predictions and create useful insights (European Commission, Digital Single Market – Artificial
Intelligence for Europe).
Left: A schematic AI system; right: A simplified overview of AI’s sub-disciplines and relationship. (AI HLEG, April 2019).
Financial institutions are increasingly using AI and machine learning in a range of applications across
the financial system including to assess credit quality, to price and market insurance contracts and to
automate client interaction. Institutions are optimising scarce capital with AI and machine learning
techniques, as well as back-testing models and analysing the market impact of trading large positions.
Meanwhile, hedge funds, broker-dealers and other firms are using it to find signals for higher
uncorrelated returns and to optimise trade execution. Both public and private sector institutions may
use these technologies for regulatory compliance, surveillance, data quality assessment and fraud
detection (FSB, 2017).
AIML can also be used by robo-advisors, which are applications combining digital interfaces and
algorithms in order to provide services ranging from automated financial recommendations to contract
brokering to portfolio management to their clients (FSB, February 2019).
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• Cloud computing and cloud services
Cloud computing refers to the practice of using a network of remote servers, typically accessed over
the internet, for the provision of IT services. Cloud computing offers advantages such as economies
of scale, flexibility, operational efficiencies and cost effectiveness (FSB, February 2019).
The following table provides on overview on cloud service models as used by financial institutions and
FinTech.
Cloud service models (FSB, February 2019).
• Distributed ledger technology (DLT) including blockchain
Blockchain is the best-known distributed ledger technology. A ledger is a database which keeps a
final and definitive record of transactions. Records, once stored, cannot be tampered without leaving
behind a clear track. Blockchain enables a ledger to be held in a network across a series of nodes,
which avoids one centralised location and the need for intermediaries' services. This is particularly
helpful to provide trust, traceability and security in systems that exchange data or assets.
It is important to avoid confusion between blockchain technologies and cryptocurrencies, which
represent just one type of application of blockchain. Blockchain can underpin a wide range of
applications in various sectors, which are not limited to cryptocurrency or FinTech (Source: FAQ on
the FinTech Action Plan, European Commission, March 2018).
Although financial services and FinTech companies are among first explorers of this technology, its
transformative impact goes potentially far beyond the financial sector, with use cases and applications
in supply chain, energy, government, healthcare and sports26.
26 See CONSENSYS webpage, https://consensys.net
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Crypto-assets are digital assets recorded on a distributed ledger. The earliest and best-known
example of crypto-assets is crypto-currencies, a special type of virtual currency (European
Parliament, 2019).
Among others, blockchain-enabled solutions include smart contracts, which are programmable
distributed applications that can trigger financial flows or changes of ownership if specific events
occur. They can be used to automate process and business transactions, thus reducing transaction
cost (FSB, February 2019)27.
The EU FinTech Action Plan has a special focus on blockchain, which the Commission considers
likely to become a key component of the digital economy and society.
• Big Data Analytics
Big Data consists of the use of highly developed IT tools to process very large sets of different types
of data. Big Data may include consumer data from web pages, social media, internet browsing
history, smart phone signals or data generated by using a payment card. For example, using Big Data
technology, a financial institution could link a person’s social media information with financial data
about the person’s savings activities. Financial institutions could therefore use this information to
understand better the person’s savings and investment habits. Financial institutions increasingly apply
Big Data to everyday life financial services and will continue to do so in the future (Joint Committee of
ESAs, Big Data Factsheet, undated).
The increased use of customer data or big data by financial institutions may lead to benefits to
consumers, such as the development of more tailored, segmented and cheap offers based on more
efficient allocation of risk and capital (EP, 2017).
• Internet of Things (IoT)
Software, sensors and network connectivity embedded in physical devices, buildings, and other items
that enable those objects to: (i) collect and exchange data and (ii) send, receive and execute
commands (FSB, February 2019). IoT is considered to be especially vulnerable to cyberattacks and
therefore poses a particular challenge to cybersecurity, with a connected system being as safe as its
weakest element (EP, 2017).
• Application programming interface (API):
API is a set of rules and specifications followed by software programmes to communicate with each
other, and an interface between different software programmes that facilitates their interaction. API is
used in “open banking”, a system in which financial institution’s data can be shared for users and
third-party developers (FSB, February 2019).
27 For further educational videos on blockchain and smart contracts, see the website of the EU Blockchain Forum
https://www.eublockchainforum.eu/knowledge